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Lots of column inches on paper and blogs about what Scottish Independence would mean for the economy, ordinary people, etc. Not much I could see that looked at this from an IT perspective. If you run an IT operation in the UK (or internationally) what are the implications?

With so many unknowns about what an independent Scotland would look like, we cannot be certain about the precise impacts, but we can guess about the probability of some main issues.

Timing

For the purpose of this article we’ll assume that a ‘Yes’ vote happens on the 19th September. Nothing immediately will change since it will take a lot of political horse-trading to settle exactly how independence will happen, and of course when. The SNP is aiming for March 2016, but considering this is just 18 months after the vote, it’s possible that it will be later than this.

Eighteen months might be enough for some companies to adapt. Bear in mind the negotiations on what independence means in reality will take time, and given the size and scope of these issues. I would expect this process to take many months, so this could mean the time between negotiations completing and the date of independence could be as little as six months. You should start your planning on 20th September.

Currency

Leaving the political arguments aside, Scotland has three choices: the Euro, sharing the UK Pound, or creating a new Scottish Pound.

Euro

The Euro is politically unpalatable given the current state of the Eurozone, and the SNP itself says there is “no prospect” of using the Euro. So we can rule this one out, yes?

Maybe not. Scotland will want to join the EU, and EU membership rules for new members require the use of the Euro as currency. Scotland will definitely want to re-join the EU, so the circle has to be squared somehow. Scotland negotiating an opt-out as part of the membership negotiations is possible, but unlikely given their small size and therefore weak position. Set against this is that many of the recent members (Romania, Bulgaria, Czech Republic, Croatia, Poland and Hungary) have not joined the Euro. However, in most cases these countries will have to adopt the Euro eventually – it’s more a question of when, than if.

If we look at the Baltic states as an example, Estonia and Latvia joined the EU on 1st May 2004 but only converted to the Euro in 2011.

Interestingly the Convergence Criteria for the Euro require that the country in question would need to have “participated in ERM II for two years without severe tensions”. Assuming Scotland shares the pound it has no way to join ERM II without the UK’s agreement (which we can safely assume it’s not going to get), and therefore is both required to join and prevented from doing so.

So don’t assume this will never happen. As other countries have shown, you don’t have to convert to the Euro immediately and the rules would suggest that Scotland isn’t going to be eligible anyway unless they create their own currency first.

From an IT perspective though, it’s almost certainly four or five years away at best, so we can discount it for now.

Sharing UK Pound

This is the best outcome from an IT viewpoint – it means all systems can operate unchanged in currency terms at least.

But how likely is it? And would it last?

Sharing the UK Pound would mean that Scotland would lose control over its currency and therefore over interest rates, and to a degree over fiscal policy. This is not a political argument, but a logical outcome of simple economics. To explain:

Scotland’s economy is about 9% of the UK’s total GDP. If the pound is shared, the decisions about interest rates and exchange rate control will have to reflect what happens in the 91% of the economy more than what happens in Scotland. Interest rates in the rest of the UK would therefore determine the interest rates in Scotland, since you can’t have different interest rates in the same currency for very long.

A currency union also directly impacts fiscal policy, as the Eurozone has so ably demonstrated, with Greece being told how much they can spend and borrow. Scotland cannot set its spending and debt plans with complete independence. Agreed or informal currency sharing is quite likely to be the case immediately after independence, but I don’t expect it to last in the medium term.

So from an IT perspective, you can probably assume with a high degree of confidence that the pound will remain as Scotland’s currency for the immediate future, whether by agreement or not. How long this would last is an interesting question.

Scottish Pound

The third alternative is for Scotland to create it’s own currency (we’ll call it the Scottish Pound for now). This scenario has a similar level of impact as the Euro from an IT perspective – it’s a separate currency with its own exchange rates, symbols etc. The exchange rate might be set to shadow the pound initially, but don’t bank on that being the case, and assume that the initial 1:1 exchange rate might change in the future.

Is this a probable outcome? No, I don’t think a “Scottish pound” is very likely. It would be a very weak currency, and the cost of setting it up would be very high and introduce transaction costs on Scottish businesses dealing with the UK. And once Scotland re-joins the EU they will have to dump it and start again with the Euro. It would be the worst case scenario in the short term.

Legal

Scotland has its own legal system already (with some overlap with the UK) and laws are broadly similar with those in England/Wales. So it’s likely that not much would change. Cross-border contracts might be impacted if the pound isn’t shared post-independence (e.g. pricing) but since I believe that to be unlikely it’s not an immediate problem.

Regulation

Data protection might suddenly be an issue for some IT operations. An independent Scotland would not be part of the EU, and therefore EU rules about storing data on EU customers outside the EU would now apply. This might possibly result in repatriation of data to the UK, but it’s not a common scenario I believe.

Other regulatory bodies might also have an impact. Our business is in telecommunications, so we fall under Ofcom’s remit. A Scottish Ofcom (SofCom?) might impose different regulations and require operational changes on customers based in Scotland.

Taxation

An independent Scotland would be free to set its own tax rates and regulations. The VAT rate might alter, and the rules on things like exemptions and applicability would mean that Scottish and UK customers would need to be treated differently.

The rules on employment and employment taxes would also probably change. These would obviously impact on transactional and accounting systems.

Internet

The top-level-domain (TLD) .uk is currently used for many UK businesses and organisations. A new TLD for Scotland .sco has already been created but following a Yes vote this could see a rush of requests to grab the good names.

At present the domain is in a “sunrise phase” where trademark holders can pre-register domains, but this expires on 23rd September. So if you want a .sco domain, now is the time to register.

Conclusion

The independence vote has been a long time coming, but it’s only now with opinion polls putting the Yes camp in front that it is being considered as a possible reality.

The fundamental problem is that every key issue, from the currency downwards, is not clearly defined. In the event of the Yes vote, IT departments might want to start the planning process, but you don’t need to panic about it.

Disclaimer

I’m not trying to argue a pro- or anti- independence case here, just trying to work out what the likely outcomes would be and the impacts on IT. I welcome any comments that point out any factual errors, or that add any key areas I’ve missed (I’m sure there are lots!).

After my posting about Mr Smith it seems that Herr Schmidt of Germany seems to agree with me.

It does seem odd that the press in this country is basically accepting what "Mr Smith" is telling us we need to do rather uncritically. It needs more people (especially the opposition) to state the obvious – the emperor has no clothes.

About eleven years ago, Mr Smith wasn’t worried about his financial position. Times were good. He had a good job with decent pay. However, he had some minor debts built up and, as he thought it was a good idea not to be so in debt, he started to pay them off a bit.

The Family

The problem was his dependents liked to spend money. Lots of it. They had a luxurious lifestyle and they liked it.

Fortunately Mr Smith was doing well at work, he was getting regular pay rises (although he hadn’t got a promotion) so he gave all his extra new money to his family. Although he had started to pay off his debts he hadn’t cleared them. But that didn’t matter, he could afford the interest payments because his income was going up too.

Now in the last five years his family has been spending even more.. more even than Mr Smith’s earnings were rising, so Mr Smith had been taking out some more loans to cover all this extra spending. After all he figured, things are still good, I’ve got a good job and it’s manageable. I can pay it back in a few years. Besides, he didn’t want to let his family down.

Crunch

Then the credit crunch hit. Suddenly Mr Smith’s income started to fall, and over the next few years it is likely to fall further. So here he is, a lot of big debts and a drop in income.

What would you do in this situation? Well Mr Smith’s solution was to borrow even more. Yes, that’s right – where most of us would rein in our spending and tighten those belts, Mr Smith’s solution was to borrow even more money.

Do you think Mr Smith is smart or stupid? And do you know his real name?